What is a Short Sale?

I still get this question all the time, even though short sales are a common thing in the Portland Metro Area. So I thought I would answer it in my blog so that all of you searching for home (and possibly selling a home) will have the correct information.

Short Sale: A Definition

Simply put, a short sale is when a homeowner is trying to sell a home when he owes more on the mortgage than the home is worth. The homeowner (seller) is going to ask the bank to take loss, in an attempt to forgo the foreclosure process.

Let’s look at an imaginary scenario to explain it further. Let’s say that homeowner Smith bought his home in 2005 for $300k. He took out one of those 100% loans that were the rage back then. Well, things were going fine until he got laid off 6 months ago. And he hasn’t been able to find a job since. Mr. Smith’s savings are dwindling fast so he has decided to sell his home. To make matters worse, the value of the homes in his neighborhood (and most of the city) have gone down 20%. His Realtor told him he could only get $240k for his home right now.

Mr. Smith owes a little under $300k and can only sell his home for $240k. Mr. Smith will put his home for sale as a short sale and try to get the bank to take payment in full for $240k.

Will the bank take the short payoff? The short answer is: it depends. See my next post to get the long answer and why I never recommend short sales to my buyers.